German VAT proposal threatens to make country ‘toxic’
German Federal Tax Office plans to levy VAT on sales of German travel product by non-EU tour operators threaten to make Germany “a toxic destination”.
That is according to Tom Jenkins, chief executive of European tourism association Etoa, who denounced the plans as “seriously unreasonable”.
Germany announced in January 2021 that the Tour Operators’ Margin Scheme (TOMS) would not apply to operators from non-EU countries including the UK, meaning they would have to register for VAT in Germany.
However, implementation was deferred – initially to January this year and then to January 2023, with the tax authority confirming its intention to push ahead in July.
Etoa chief executive Tom Jenkins said: “The implication is that all non-EU intermediaries selling German product must register with the German tax authorities.
“In effect, this will apply a sales tax to German product. A European tour that involves any services in Germany will have to comply.”
Speaking on an Etoa webinar, Jenkins noted: “TOMS simplifies VAT rules for operators. All they do is account for VAT on their margin in the state where they’re established, avoiding having to register for VAT in each EU state.”
He warned the change “will impose double taxation”, saying: “This is a sales tax targeting activities outside Germany when VAT is already paid on products in Germany.”
Jenkins added: “The compliance costs are substantial. But it’s not just about the money.
“The compliance burden is considerable. Accommodation, catering, cultural attractions, river cruises, tour guides, transportation all have different rates of VAT.
“It is entirely unreasonable and there is widespread ignorance of this. If implemented, this starts to make Germany a seriously toxic destination.”
He advised travel companies to “treat all 2023 programmes that include Germany with caution” and suggested they “write to suppliers, chambers of commerce, tourism offices” to let them know “the damage this will do”.
VAT specialist David Bennett, a director at Elman Wall Bennett, said: “If a UK tour operator or an agent acting in its own name sells German accommodation in the UK next year, the company will be expected to pay VAT in Germany.”
Bennett warned: “Croatia has done the same and UK B2B operators have now registered [for VAT] in Croatia. Austria may go the same way. We’ve heard Cyprus and Portugal are considering similar.”
The German tax authority has said Finland and Greece are also poised to follow.
Yet the tax office has given no details of how its new VAT regime will apply to UK and other non-EU travel firms.
Jenkins said: “We don’t know where people register [for VAT], and we don’t know whether businesses will have to file [tax returns] monthly – as is the convention in Germany.
“We don’t know whether there is a minimum level. Are people going to be able to file in their own language? Will there be any attempt to publicise what is happening? No formal notice has been served.”
He added: “Do the Germans have the capacity to cope?
“A significant part of agents’ business is buying product and adding their own margin. Even if only a small percentage of agents will be liable, the Germans will need to address a formidable volume of enquires.
“The first question any business will ask is ‘Are my competitors going to comply with this?’ So how is this going to be enforced? We don’t know what penalties there will be for non-compliance.
“How will the authorities follow transcontinental intermediaries?
“It is possible a hotel room will be contracted by a London wholesaler, sit on a bed bank in Japan and be sold to a wholesaler in China who sells it on to a Chinese agent, all at net rates. How will the authorities follow the tax liability?”